By Frederick Muller
The active vs passive debate has been ongoing for a very long time. What is it all about?
Let us start with a short explanation of each.
Active investing involves the investment manager making decisions about which investment instruments to buy or sell, using a specific research process. This active selection process by the investment manager is also known as “price discovery”. The aim of active investment management is to outperform the market (or a specific benchmark), otherwise known as delivering positive ‘alpha’.
Passive investing tracks a market index to replicate its performance rather than beat it. Examples of passive indices are the FTSE/JSE Top 40 Index (SA equities), S&P 500 Index (US equities), MSCI All Country World Index (Developed and emerging market equities) and the IJG All Bond Index (Namibian Bonds).
Each of the active and passive approaches has its own advantages and disadvantages. Active investment management for example, has the potential to outperform the market index and has the ability to protect investments on the downside when markets are falling. This however involves a higher cost due to higher investment management fees and trading expenses. Passive investing has minimal investment management fees and trading expenses, but the performance is tied to the relevant market index (minus fees paid to index tracker) and there is no flexibility to exploit short term opportunities. It also tracks the index when markets are falling.
Alexforbes has recently done an analysis of what percentage of investment managers have outperformed their benchmarks over various time periods to 30 April 2025.
The results are summarized in the chart below (SA Equity Filtered means we have omitted investment managers with a track record of less than 13 years and any investment manager not used in the institutional space).
Our results show that in the SA equity, fixed income and money market categories, a meaningful portion of active investment managers were able to outperform their respective benchmarks. The picture is vastly different when it comes to global equities and global property, in which categories less than one in 10 active investment managers have outperformed the relevant benchmark over the longer term.
How could multi-management solve the problem?
As the only multi-manager in Namibia, Alexforbes is unique in the sense that we are the only investment manager combining active and passive investing strategies for multiple asset classes in our investment portfolios, to reap the benefits of both active and passive investing strategies. We have for example already included passive investing strategies for global and SA equities into our investment portfolios. Based on the research, we plan to further increase the exposure to passive investing for global equities.
We follow a scientific approach to continually improve our investment portfolios.
Frederick Muller is the MD of Alexforbes Investments Namibia